As Northern Rock’s shareholders sit down in Newcastle to discuss the fate of the stricken lender, it’s a stark reminder that the problems in the banking sector are not confined to this side of the Atlantic. Citi’s huge write-off – which is twice as big as the bank was originally predicting – meant that it recorded a loss last quarter for the first time since 1998. And it’s done so in style: it ended the period nearly $10bn in the red, which we imagine it’s quite disappointed about.
The banking giant is now planning a $12.5bn capital injection, to bolster its balance sheet. There can’t be many sovereign wealth funds out there that haven’t already spent their winter pocket money on shoring up one of Wall Street’s finest – Citi itself has already gone cap in hand to Abu Dhabi for a $7bn injection. But it seems to have found one: Singaporean fund GIC will lead the latest round of capital raising, alongside Capital Research Global Investors and former chairman Sandy Weill. The state-owned China Development Bank had been lined up to take a $2bn stake, according to the Wall Street Journal, but that’s apparently fallen through.
In one of the less contentious statements to emerge from Wall Street this year, Citi called the results ‘clearly unacceptable’. Not surprisingly in the circumstances, it’s also slashed its dividend by 40% and promised to sell off non-core assets.
So far Citigroup’s keeping quiet on job losses, but reports are suggesting that it could cut more than 20,000 – equivalent to 6% of its total workforce (it swallowed costs for 4,200 job cuts last quarter). New boss Vikram Pandit, who took over from Chuck Prince in the wake of the sub-prime melt-down, clearly wants to take advantage of his ‘new broom’ window to make the enormous company a little leaner and meaner.
Citi presumably won’t be the last; more losses are likely to follow up and down Wall Street as the sub-prime fall-out continues. But the news throws an interesting light on the Northern Rock situation, emerging as it does on the very day that its shareholders are discussing how to salvage their stakes. After all, the Rock was still making a profit when it went cap in hand to the Bank of England – SRM’s Jon Wood told shareholders this morning that if Mervyn King had kept this quiet, the bank wouldn’t be in this mess…
There’ll be a full report on the Northern Rock EGM this afternoon – come back later for the low-down on events in Newcastle.